[Federal Register Volume 73, Number 238 (Wednesday, December 10, 2008)]
[Proposed Rules]
[Pages 74989-74999]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-29123]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 73, No. 238 / Wednesday, December 10, 2008 /
Proposed Rules
[[Page 74989]]
FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-1340]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; request for public comment.
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SUMMARY: On July 30, 2008, the Board published a final rule amending
Regulation Z, which implements the Truth in Lending Act (TILA) and the
Home Ownership and Equity Protection Act (HOEPA). The July 2008 final
rule requires creditors to give consumers transaction-specific cost
disclosures shortly after application for closed-end loans secured by a
consumer's principal dwelling. The disclosures must be provided before
the consumer pays any fee, other than a fee for obtaining the
consumer's credit history. Also on July 30, 2008, the Congress enacted
the Housing and Economic Recovery Act of 2008, which included
amendments to TILA, known as the Mortgage Disclosure Improvement Act of
2008 (MDIA). On October 3, 2008, the Congress amended the MDIA in
connection with its enactment of the Emergency Economic Stabilization
Act of 2008 (``Stabilization Act''). The Board is now proposing
revisions to Regulation Z to implement the provisions of the MDIA, as
amended.
The MDIA broadens and adds to the requirements of the Board's July
2008 final rule. Among other things, the MDIA requires early,
transaction-specific disclosures for mortgage loans secured by
dwellings other than the consumer's principal dwelling and requires
waiting periods between the time when disclosures are given and
consummation of the transaction. Moreover, these requirements of the
MDIA will become effective on July 30, 2009, about two months earlier
than the Board's regulatory amendments adopted in the July 2008 final
rule.
Consistent with the MDIA, the proposed amendments to Regulation Z
would require creditors to deliver good faith estimates of the required
mortgage disclosures or place them in the mail no later than three
business days after receiving a consumer's application for a dwelling-
secured closed-end loan. The delivery or mailing of these disclosures
would have to occur at least seven business days before consummation.
If the annual percentage rate provided in the good faith estimates
changes beyond a stated tolerance, creditors must provide corrected
disclosures, which the consumer must receive at least three business
days before consummation of the transaction. The proposal would allow
consumers to expedite consummation to meet a bona fide personal
financial emergency. The MDIA, as amended by the Stabilization Act,
specifies different requirements for providing early disclosures for
mortgage transactions secured by a consumer's interest in a timeshare
plan.
DATES: Comments must be received on or before January 23, 2009.
ADDRESSES: You may submit comments on the proposed amendments to
regulation Z, identified by Docket No. R-1340, by any of the following
methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include the
docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Address to Jennifer J. Johnson, Secretary, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue, NW., Washington, DC 20551.
All public comments will be made available on the Board's web site
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, comments
will not be edited to remove any identifying or contact information.
Public comments may also be viewed electronically or in paper in Room
MP-500 of the Board's Martin Building (20th and C Streets, NW) between
9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Jamie Z. Goodson or Nikita M. Pastor,
Attorneys; Division of Consumer and Community Affairs, Board of
Governors of the Federal Reserve System, Washington, DC 20551, at (202)
452-2412 or (202) 452-3667. For users of Telecommunications Device for
the Deaf (TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
One of the purposes of the Truth in Lending Act (TILA), 15 U.S.C.
1601 et seq., is to promote the informed use of consumer credit by
requiring disclosures about its terms and cost. The act requires
creditors to disclose the cost of credit as a dollar amount (the
finance charge) and as an annual percentage rate (APR). Uniformity in
creditors' disclosures is intended to assist consumers in comparison
shopping. TILA requires additional disclosures for loans secured by
consumers' homes and permits consumers to rescind certain transactions
that involve their principal dwelling.
TILA mandates that the Board prescribe regulations to carry out the
purposes of the act. 15 U.S.C. 1604(a). TILA is implemented by the
Board's Regulation Z. 12 CFR part 226. An Official Staff Commentary
interprets the requirements of the regulation and provides guidance to
creditors in applying the rules to specific transactions. 12 CFR part
226 (Supp. I).
TILA Section 128, 15 U.S.C. 1638, requires creditors to make
specified disclosures in connection with closed-end consumer credit
transactions before the credit is extended. Before enactment of the
MDIA, in connection with certain mortgage loans, creditors were
required to make good faith estimates of such disclosures (``early
disclosures'') before the credit is extended or within three business
days after the consumer has submitted an application, whichever is
earlier. 15 U.S.C. 1638(b)(2). In implementing TILA Section 128,
Regulation Z requires creditors to give these early disclosures only
for loans that finance the purchase or initial construction of a
consumer's principal dwelling. On July 30, 2008, the Board published a
final rule amending Regulation Z (the July 2008 final rule)
[[Page 74990]]
(73 FR 44522). The July 2008 final rule requires, among other things,
that a creditor provide these early disclosures even when the loan is
not for the purpose of financing the purchase or initial construction
of the principal dwelling. Under the July 2008 final rule, the early
disclosures also must be provided for non-purchase closed-end loans
secured by the consumer's principal dwelling (such as a refinance
loan). The July 2008 final rule also required these disclosures to be
given before the consumer pays any fee, other than a bona fide and
reasonable fee for reviewing credit history. As published, these
provisions of the July 2008 final rule are scheduled to become
effective on October 1, 2009 (73 FR at 55494).
On the same day that the July 2008 final rule was published,
Congress amended TILA by enacting the Mortgage Disclosure Improvement
Act of 2008 (MDIA).\1\ The MDIA amends TILA and codifies some of the
early disclosure requirements of the July 2008 final rule, but also
expands upon the regulatory provisions.
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\1\ The MDIA is contained in Sections 2501 through 2503 of the
Housing and Economic Recovery Act of 2008 (HERA), Pub. L. 110-289,
enacted on July 30, 2008. The MDIA was amended by the Emergency
Economic Stabilization Act of 2008, Pub. L. 110-343, enacted on
October 3, 2008.
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Like the July 2008 final rule, the MDIA requires creditors to make
the early disclosures even when the loan is not for the purpose of
financing the purchase or initial construction of the consumer's
principal dwelling and prohibits the collection of fees before the
consumer receives the disclosures, other than a fee for obtaining a
consumer's credit history. However, the MDIA applies these provisions
to loans secured by a dwelling even when it is not the consumer's
principal dwelling. Moreover, the MDIA imposes additional requirements
not contained in the July 2008 final rule. Under the MDIA, for loans
secured by a consumer's dwelling, creditors must deliver or mail the
early disclosures at least seven business days before consummation. If
the APR contained in the early disclosures becomes inaccurate (for
example, due to a change in the loan terms), creditors must
``redisclose'' and provide corrected disclosures that the consumer must
receive at least three business days before consummation. The
disclosures also must inform consumers that they are not obligated to
complete the transaction simply because disclosures were provided or
because the consumer has applied for the loan. The MDIA imposes
different requirements for early disclosure in closed-end mortgage
transactions that are secured by a consumer's interest in a timeshare
plan.\2\ These provisions of the MDIA will become effective on July 30,
2009, which is about two months earlier than the effective date of the
July 2008 final rule.
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\2\ The MDIA also increases the dollar amounts of civil
liability for TILA violations.
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At this time, the Board is proposing only to conform Regulation Z,
as amended on July 30, 2008, to the MDIA provisions that become
effective on July 30, 2009. The MDIA also contains additional
disclosure requirements for variable-rate transactions that are not
addressed in this proposed rulemaking. Those provisions of the MDIA
will not become effective until January 30, 2011, or any earlier
compliance date ultimately established by the Board. This proposal does
not address those disclosures. The Board anticipates issuing proposed
amendments to Regulation Z to implement those provisions of the MDIA
during 2009, in connection with the Board's comprehensive review of
closed-end mortgage disclosures that is currently underway.
As discussed above, the MDIA contains several provisions that
mirror the July 2008 final rule. These provisions are not discussed
below because they are explained in detail in the supplementary
information portion of the July 2008 final rule. (See 73 FR 44522; July
30, 2008). Final rules adopting this proposal would become effective
July 30, 2009, pursuant to MDIA. In addition, to conform with the MDIA,
certain regulatory changes that the Board adopted in July 2008 will
also become effective on July 30, 2009 (and not on October 1, 2009 as
originally provided in the July 2008 final rule). These regulatory
changes are: The requirement that early disclosures be given for
dwelling-secured mortgage transactions rather than only for
``residential mortgage transactions'' to finance the purchase of
initial construction of the dwelling (in Sec. Sec. 226.17(f) and
226.19(a)(1)(i) and associated commentary) and that early disclosures
be given before consumers pay any fee except a fee for obtaining the
consumer's credit history (in Sec. 226.19(a)(1)(ii) and (iii) and
associated commentary).
Minor conforming and technical amendments to Regulation Z are also
being proposed.
II. Section-by-Section Analysis of Proposed Regulatory Provisions
A. Coverage of Sec. 226.19
TILA Section 128(a) requires creditors to disclose certain
information for closed-end consumer credit transactions, including, for
example, the amount financed and the APR. TILA Section 128(b)(2)
requires creditors to make good faith estimates of these disclosures
within three business days of receiving the consumer's application, or
before consummation if that occurs earlier. Until the recent enactment
of the MDIA, TILA Section 128(b)(2) applied only to a ``residential
mortgage transaction'' subject to the Real Estate Settlement Procedures
Act (RESPA). See 15 U.S.C. 1602(w). A residential mortgage transaction
is defined in TILA as a loan to finance the purchase or initial
construction of a consumer's dwelling. Regulation Z limits the
definition to transactions secured by the consumer's principal
dwelling. See Sec. 226.2(a)(24).
The MDIA extends the early disclosure requirement in TILA Section
128(b)(2) to additional types of loans. Under the MDIA, early
disclosures are required for ``any extension of credit secured by the
dwelling of a consumer.'' Thus, as amended, the statute requires early
disclosures for home refinance loans and home equity loans. This is
consistent with revisions made by the Board's July 2008 final rule.
This proposal would, however, amend Regulation Z to also apply the
early disclosure requirements to loans secured by dwellings other than
the consumer's principal dwelling. Accordingly, proposed Sec.
226.19(a)(1)(i) would require creditors to give consumers early
disclosures in connection with dwelling-secured credit (if also subject
to RESPA), whether or not the loan is for the purpose of financing the
purchase or initial construction of the consumer's principal dwelling.
As is currently the case, Sec. 226.19(a)(1)(i) as proposed to be
revised would not apply to home equity lines of credit (HELOCs), which
are subject to the rules for open-end credit in Sec. 226.5b; the July
2008 final rule also did not apply to HELOCs. As discussed in detail in
part II.G of the SUPPLEMENTARY INFORMATION, however, the Board is
requesting comment on the timing of HELOC disclosures, in connection
with the review of content and format requirements for HELOC
disclosures by Board staff that currently is under way.
TILA Section 128(b)(2) (as amended by the MDIA) applies to
dwelling-secured mortgage transactions if they also are subject to
RESPA. The U.S. Department of Housing and Urban Development's (HUD)
Regulation X implements RESPA. See 12 U.S.C. 2601 et seq.; 24 CFR
3500.1 et seq. In March 2008, HUD published a proposal to
[[Page 74991]]
amend Regulation X. (See 73 FR 14030; Mar. 14, 2008). In November 2008,
HUD published final rules amending Regulation X. (See 73 FR 68204; Nov.
17, 2008). The Board believes that these proposed amendments to
Regulation Z's timing requirements for early disclosures remain
consistent with timing requirements for good faith estimates of
settlement costs under Regulation X, as amended. Consistency between
Regulation Z and Regulation X are discussed below in part IV of the
Supplementary Information. The Board requests comment about ways to
further conform Regulation Z's disclosure timing requirements for
dwelling-secured credit to the disclosure timing requirements in HUD's
Regulation X, as amended.
B. Timing of Delivery of Early Disclosures--Sec. 226.19(a)(1)(i)
Currently under Regulation Z, creditors must provide the early
disclosures within three business days after receiving the consumer's
written application or before consummation, whichever is earlier. The
MDIA amends TILA to require creditors to deliver or mail the early
disclosures no later than three business days after receiving the
consumer's application and at least seven business days before
consummation. The Board is proposing to further amend Sec.
226.19(a)(1)(i), as published in the July 2008 final rule, to reflect
this change. Proposed comment 19(a)(1)(i)-6 would be added to clarify
that consummation could occur any time on the seventh business day
following delivery or mailing; the proposed comment provides examples
to facilitate compliance.
The MDIA provides that consumers must receive the early disclosures
before paying any fee in connection with the mortgage application
(other than for obtaining the consumer's credit history) and further
provides that if the disclosures are mailed, the consumer is considered
to have received them three business days after they are mailed. This
provision of the MDIA merely codifies Sec. 226.19(a)(1)(ii) and (iii)
of Regulation Z, as adopted in the Board's July 2008 final rule.
Accordingly, no further revisions to Sec. 226.19(a)(1)(ii) or (iii)
are being proposed at this time.
Revisions would also be made to comment 19(a)(1)(i)-3 to conform a
reference to HUD's Regulation X to the current language in that
regulation.
C. Redisclosure Requirements--Sec. 226.19(a)(2)
Currently, when a creditor provides early TILA disclosures and the
APR subsequently changes beyond the specified tolerance, the creditor
must redisclose the APR and other changed terms no later than
consummation or settlement. The MDIA amends TILA Section 128(b)(2) to
require that creditors make corrected disclosures that consumers must
receive at least three business days before consummation in such
circumstances. The MDIA removes the reference to ``settlement'' for
purposes of this requirement. (For mortgage transactions secured by a
consumer's interest in a timeshare plan, however, the MDIA requires
creditors to disclose changed terms at the time of consummation or
settlement, as discussed below.) The Board is proposing to amend Sec.
226.19(a)(2) to reflect this change. Under the proposal, consummation
can occur anytime on the third business day after the consumer receives
the corrected disclosure.
The MDIA also provides that if the corrected disclosures are
mailed, the consumer is considered to receive the disclosures three
business days after mailing. This is consistent with the presumption
the Board adopted in the July 2008 final rule in Sec.
226.19(a)(1)(ii), which applies when the early disclosures are mailed;
those disclosures must be received by the consumer before fees are
collected (other than a credit report fee). The Board is proposing to
revise comment 19(a)(2)-1 to provide examples illustrating the effect
of the three-business-day waiting period and when consummation may
occur.
Comment 19(a)(2)-3 would be revised to clarify that the three-
business-day waiting period before consummation begins when the
disclosures are received by the consumer and not when they are mailed.
This is consistent with the rules for certain high-cost loans and
reverse mortgage transactions, which also require a creditor to make
disclosures at least three business days before consummation. See Sec.
226.31(c) and comment 31(c)-1.
D. Definition of ``Business Day''--Sec. 226.2(a)(6)
The MDIA provides that if the early disclosures are mailed to the
consumer, the consumer is considered to have received them three
business days after they are mailed. This presumption is important to
two provisions in the MDIA: (1) The prohibition on collecting fees
before the consumer receives the early disclosures; and (2) the
requirement, if the APR in the early disclosures becomes inaccurate,
that creditors make corrected disclosures, which consumers must receive
at least three business days before consummation.
In the July 2008 final rule, the Board revised the definition of
``business day'' to clarify how creditors should count weekends and
federal legal public holidays in determining when mailed disclosures
are presumed to be received and how long the restriction on fees
applies under Sec. 226.19(a)(1)(ii). See 73 FR 44599. The Board is
proposing to further revise the definition of ``business day'' to
clarify that creditors should count ``business days'' the same way for
purposes of the presumption in proposed Sec. 226.19(a)(2) that
consumers receive corrected disclosures three business days after they
are mailed.
Currently, Sec. 226.2(a)(6) contains two definitions of ``business
day.'' Under the general definition, a ``business day'' is a day on
which the creditor's offices are open to the public for carrying on
substantially all of its business functions. However, for some purposes
a more precise definition applies; ``business day'' means all calendar
days except Sundays and specified federal legal public holidays, for
purposes of Sec. Sec. 226.15(e), 226.23(a), and 226.31(c)(1) and (2).
The July 2008 final rule adopted the more precise definition for use in
determining when mailed disclosures are presumed to be received under
Sec. 226.19(a)(1)(ii), and this definition would also apply for
purposes of proposed Sec. 226.19(a)(2).
Under the MDIA, creditors must deliver the early disclosures, or
place them in the mail, no later than three business days after
receiving a consumer's application for dwelling-secured credit; the
delivery or mailing also must occur at least seven business days before
consummation. Under the Board's proposal, the general definition of
business day would be used for purposes of satisfying these timing
requirements, which are contained in proposed Sec. 226.19(a)(1)(i).
This would ensure consistency with RESPA's requirement that creditors
provide good faith estimates of settlement costs not later than three
business days after the creditor receives the consumer's application
for a federally related mortgage loan. See 24 CFR 3500.2(b) and 3500.7.
In order to simplify the rule, the general definition of business day
would also be used for determining when the 7-day waiting period has
expired and consummation may occur. The Board requests comment,
however, on whether the more precise definition of business day should
be used to facilitate compliance with the seven business day waiting
period requirement.
[[Page 74992]]
E. Consumer's Waiver of Waiting Period Before Consummation--Sec.
226.19(a)(3)
Under the MDIA, to expedite consummation of a mortgage transaction,
a consumer may modify or waive the timing requirements for the early
disclosures when the consumer determines that the credit extension is
needed to meet a bona fide personal financial emergency. However, the
consumer must receive the disclosures required by Sec. 226.18 at or
before the time of the consumer's modification or waiver.
To implement this provision, proposed Sec. 226.19(a)(3) would
permit the consumer to shorten or waive the seven-business-day period
required by Sec. 226.19(a)(1)(i) or the three-business-day waiting
period required by Sec. 226.19(a)(2). As required by the MDIA, a
consumer may shorten or waive the pre-consummation waiting period only
if the consumer has received accurate TILA disclosures reflecting the
final costs and terms. Accordingly, if the consumer waives the seven-
business-day waiting period based on the early disclosures, and a
change occurs that makes the APR inaccurate (as determined under Sec.
226.22), the consumer must receive corrected disclosures before
consummation. In that circumstance, the three-business-day waiting
period in Sec. 226.19(a)(2) would apply unless the consumer provides a
waiver after receiving the corrected disclosures. Proposed comment
19(a)(3)-2 provides examples that illustrate whether a consumer who
receives corrected disclosures does or does not need to provide a new
modification or waiver statement.
Under proposed Sec. 226.19(a)(3), the consumer must give the
creditor a dated written statement describing the emergency and
specifically modifying or waiving the waiting period(s). All consumers
entitled to receive the disclosures would have to sign the statement.
Proposed Sec. 226.19(a)(3) would prohibit the use of printed forms.
The proposed provisions concerning the modification or waiver of the
waiting periods are substantially similar to the provisions for waiving
the right to rescind and waiving the three-business-day waiting period
before consummating certain high-cost mortgage loans. See Sec. Sec.
226.15(e), 226.23(e), and 226.31(c)(1)(iii). The Board solicits comment
on the proposed modification or waiver procedures, especially whether
such procedures should be more or less flexible than existing
procedures for modifying or waiving the rescission right or the waiting
period before high-cost consummating mortgage transactions covered by
Sec. 226.32(a). In particular, the Board asks commenters to discuss
any specific procedural or other adjustments the Board should make to
implement the MDIA provisions that permit such modification or waiver.
Proposed comment 19(a)(3)-1 clarifies that a consumer may modify or
waive the required waiting period(s) only if the consumer has a bona
fide personal financial emergency that must be met before the end of
the waiting period(s). This comment is consistent with commentary on
waiving the rescission period and the pre-consummation waiting period
required for certain high-cost mortgage transactions. See comments
15(e)-1, 23(e)-1, and 31(c)(1)(iii)-1. The proposed comment explains
that whether a bona fide personal financial emergency exists would be
determined by the facts surrounding individual circumstances. The
imminent sale of the consumer's home at foreclosure during the three-
business-day waiting period is provided as an example. This example is
the same as the example in existing staff commentary on modifying or
waiving the waiting period required with certain high-cost mortgage
loans. See comment 31(c)(1)(iii)-1.
The Board solicits comment on whether under proposed Sec.
226.19(a)(3) modification or waiver should be permitted only if the
consumer's bona fide personal financial emergency must be met before
the end of the required waiting period. The Board also requests comment
on whether there are circumstances, other than pending foreclosure,
where the consumer may want to consummate the transaction before the
end of: (1) The seven-business-day waiting period after early
disclosures are made; (2) the three-business-day waiting period, if the
creditor is required to make corrected disclosures; or (3) either
period.
F. Notice--Sec. 226.19(a)(4)
The MDIA requires that the early disclosures contain a clear and
conspicuous notice containing the following statement: ``You are not
required to complete this agreement merely because you have received
these disclosures or signed a loan application.'' Under proposed Sec.
226.19(a)(4), creditors would have to include that statement in the
early disclosures, as well as in any corrected disclosures required by
Sec. 226.19(a)(2). The Board expects that requiring the notice in
corrected disclosures would impose minimal, if any, burden on
creditors. The Board requests comment on proposed Sec. 226.19(a)(4),
including any benefits to consumers or burdens to creditors that may
result from the proposed requirement. The Board also solicits comment
on whether the statement should be provided in substantially similar
form using terms that are easier for consumers to understand.
G. Timeshare Plans--Sec. 226.19(a)(5)
Proposed Sec. 226.19(a)(5) sets forth the requirements for
extensions of credit secured by a consumer's interest in a ``timeshare
plan'' (timeshare transactions), as defined in the bankruptcy laws (see
11 U.S.C. Sec. 101(53D)). Pursuant to amendments made to the MDIA in
the Stabilization Act, the disclosure requirements and the fee
restriction added by the MDIA are not applicable to these transactions,
which instead are subject to the same early disclosure requirements
that applied to ``residential mortgage transactions'' under TILA
Section 128(b)(2) before the MDIA was enacted. Accordingly, for
timeshare transactions creditors must make good faith estimates of the
disclosures required by Sec. 226.18 before credit is extended, or must
deliver or place the early disclosures in the mail within three
business days (days the creditor's offices are open to the public for
substantially all business functions) after the creditor receives the
consumer's application, whichever is earlier. The seven-business-day
waiting period and three-business-day waiting period before
consummation, contained in proposed Sec. Sec. 226.19(a)(1)(i) and
226.19(a)(2) respectively, do not apply to timeshare transactions.
If the APR stated in the early disclosures changes beyond the
specified tolerance, proposed Sec. 226.19(a)(5)(iii) requires
creditors to disclose all the changed terms no later than consummation
or settlement of the transaction. This is consistent with the existing
rules for residential mortgage transactions in Sec. 226.19(a)(2). The
discussion in proposed comment 19(a)(5)(iii)-1 of disclosing changed
terms no later than ``consummation'' or ``settlement'' for timeshare
transactions is based on current comments 19(a)(2)-3 and 19(a)(2)-4.
Currently, comment 19(a)(2)-3 states that ``consummation'' is defined
in Sec. 226.2(a), whereas ``date of settlement'' is defined in HUD's
Regulation X (24 CFR 3500.2(a)). Comment 19(a)(2)-4 currently explains
that when a creditor delays redisclosure until settlement, which may be
at a time later than consummation, disclosures may be based on the
terms in effect at settlement, rather than the terms in effect at
settlement. As discussed above,
[[Page 74993]]
for transactions other than timeshare transactions, the MDIA amends
TILA to remove reference to ``settlement'' from TILA's provisions
requiring creditors to make corrected disclosures. Under the MDIA,
consumers must receive any corrected disclosures at least three
business days before consummation.
The Board solicits comment on the costs and benefits of basing the
timing requirements for corrected disclosures solely on the time of
consummation, for purposes of non-timeshare transactions, but on the
time of consummation or settlement, for purposes of timeshare
transactions. If Regulation Z's timing requirements for corrected
disclosures should be consistent for timeshare transactions and non-
timeshare transactions, should Regulation Z require creditors to make
corrected disclosures at the time of consummation (rather than the time
of consummation or settlement), for purposes of timeshare transactions?
Or should Regulation Z require creditors to make corrected disclosures
three business days before the later of consummation or settlement, for
purposes of covered transactions other than timeshare transactions?
H. Solicitation of Comments on Timing of Disclosures for Home Equity
Lines of Credit
The MDIA applies only to closed-end loans secured by a consumer's
dwelling and does not affect the disclosure requirements for open-end
credit plans secured by a dwelling (home equity lines of credit, or
HELOCs). In connection with the Board's comprehensive review of
mortgage transactions, the Board's staff is currently reviewing the
content and format of HELOC disclosures and subjecting them to consumer
testing. A proposal to improve the disclosures is anticipated next
year. To aid in this review, the Board seeks comment on whether it is
necessary or appropriate to change the timing of HELOC disclosures and,
if so, what changes should be made.
Under current rules, consumers typically receive non-transaction
specific disclosures describing the creditor's HELOC plan at the time
they receive an application. See 12 CFR 226.5b. Creditors must provide
more detailed disclosures at account opening, before the first
transaction. See 12 CFR 226.6. The Board seeks comment on whether
transaction-specific disclosures (such as the APR, an itemization of
fees, and potential payment amounts) should be required after
application but significantly earlier than account opening, at least in
some circumstances. For example, many consumers take a major draw on
the account as soon as they open it. These consumers may use the funds
to finance a home purchase (usually, but not necessarily, with a
simultaneous closed-end loan) or an immediate expense (such as a
college tuition bill). Would a requirement to disclose final HELOC
terms, including the APR and fees, three days before account opening
substantially benefit consumers who plan to draw immediately? Comment
is also solicited on the potential costs and whether they would
outweigh potential benefits.
III. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the
proposed rule under the authority delegated to the Board by the Office
of Management and Budget (OMB). The collection of information that is
required by this proposed rule is found in 12 CFR part 226. The Federal
Reserve may not conduct or sponsor, and an organization is not required
to respond to, this information collection unless the information
collection displays a currently valid OMB control number. The OMB
control number is 7100-0199.
This information collection is required to provide benefits for
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Federal
Reserve does not collect any information, no issue of confidentiality
arises. The respondents/recordkeepers are creditors and other entities
subject to Regulation Z, including for-profit financial institutions
and small businesses.
TILA and Regulation Z are intended to ensure effective disclosure
of the costs and terms of credit to consumers. For open-end credit,
creditors are required to, among other things, disclose information
about the initial costs and terms and to provide periodic statements of
account activity, notice of changes in terms, and statements of rights
concerning billing error procedures. Regulation Z requires specific
types of disclosures for credit and charge card accounts and home
equity plans. For closed-end loans, such as mortgage and installment
loans, cost disclosures are required to be provided prior to
consummation. Special disclosures are required in connection with
certain products, such as reverse mortgages, certain variable-rate
loans, and certain mortgages with rates and fees above specified
thresholds. TILA and Regulation Z also contain rules concerning credit
advertising. Creditors are required to retain evidence of compliance
for twenty-four months (Sec. 226.25), but Regulation Z does not
specify the types of records that must be retained.
Under the PRA, the Federal Reserve accounts for the paperwork
burden associated with Regulation Z for the state member banks and
other creditors supervised by the Federal Reserve that engage in
lending covered by Regulation Z and, therefore, are respondents under
the PRA. Appendix I of Regulation Z defines the Federal Reserve-
regulated institutions as: State member banks, branches and agencies of
foreign banks (other than federal branches, federal agencies, and
insured state branches of foreign banks), commercial lending companies
owned or controlled by foreign banks, and organizations operating under
section 25 or 25A of the Federal Reserve Act. Other federal agencies
account for the paperwork burden imposed on the entities for which they
have administrative enforcement authority. The current total annual
burden to comply with the provisions of Regulation Z is estimated to be
578,847 hours for the 1,138 Federal Reserve-regulated institutions that
are deemed to be respondents for the purposes of the PRA. To ease the
burden and cost of complying with Regulation Z (particularly for small
entities), the Federal Reserve provides model forms, which are appended
to the regulation.
The proposed rule would impose a one-time increase in the total
annual burden under Regulation Z for all respondents regulated by the
Federal Reserve by 9,104 hours, from 578,847 to 587,951 hours.
The total estimated burden increase, as well as the estimates of
the burden increase associated with each major section of the proposed
rule as set forth below, represents averages for all respondents
regulated by the Federal Reserve. The Federal Reserve expects that the
amount of time required to implement each of the proposed changes for a
given institution may vary based on the size and complexity of the
respondent. Furthermore, the burden estimate for this rulemaking does
not include the burden addressing changes to format, timing, and
content requirements for the credit disclosures governed by Regulation
Z as announced in a separate proposed rulemaking (Docket No. R-1286).
The Federal Reserve estimates that 1,138 respondents regulated by
the Federal Reserve would take, on average, 8 hours (one business day)
to update their systems to comply with the proposed disclosure
requirements in Sec. Sec. 226.17 and 226.19. This one-time revision
would increase the burden by 9,104 hours.
[[Page 74994]]
The other federal agencies are responsible for estimating and
reporting to OMB the total paperwork burden for the institutions for
which they have administrative enforcement authority. They may, but are
not required to, use the Federal Reserve's burden estimation
methodology. Using the Federal Reserve's method, the total current
estimated annual burden for all financial institutions subject to
Regulation Z, including Federal Reserve-supervised institutions, would
be approximately 11,671,017 hours. The proposed rule would increase the
estimated annual burden for all institutions subject to Regulation Z by
137,600 hours to 11,808,617 hours. The above estimates represent an
average across all respondents and reflect variations between
institutions based on their size, complexity, and practices. All
covered institutions, of which there are approximately 17,200, are
potentially affected by this collection of information, and thus are
respondents for purposes of the PRA.
Comments are invited on: (1) Whether the proposed collection of
information is necessary for the proper performance of the Federal
Reserve's functions; including whether the information has practical
utility; (2) the accuracy of the Federal Reserve's estimate of the
burden of the proposed information collection, including the cost of
compliance; (3) ways to enhance the quality, utility, and clarity of
the information to be collected; and (4) ways to minimize the burden of
information collection on respondents, including through the use of
automated collection techniques or other forms of information
technology. Comments on the collection of information should be sent to
Michelle Shore, Federal Reserve Board Clearance Officer, Division of
Research and Statistics, Mail Stop 151-A, Board of Governors of the
Federal Reserve System, Washington, DC 20551, with copies of such
comments sent to the Office of Management and Budget, Paperwork
Reduction Project (7100-0199), Washington, DC 20503.
IV. Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, generally
requires an agency to perform an assessment of the impact a rule is
expected to have on small entities.\3\ However, under Section 605(b) of
the RFA, 5 U.S.C. 605(b), the regulatory flexibility analysis otherwise
required under section 604 of the RFA is not required if an agency
certifies, along with a statement providing the factual basis for such
certification, that the rule will not have a significant economic
impact on a substantial number of small entities. The Board believes
that this proposed rule will not have a significant economic impact on
a substantial number of small entities. The proposed amendments to
Regulation Z are narrowly designed to implement the revisions to the
Truth in Lending Act (TILA) made by the MDIA. Creditors must comply
with the MDIA's requirements when they become effective on July 30,
2009, whether or not the Board amends Regulation Z as proposed. The
Board's proposal is intended to facilitate compliance by eliminating
inconsistencies between Regulation Z's existing requirements and the
statutory requirements imposed by the MDIA starting July 30, 2009. A
final regulatory flexibility analysis will be conducted after
consideration of comments received during the public comment period.
The Board requests public comment in the areas discussed below.
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\3\ Under standards the U.S. Small Business Administration sets
(SBA), an entity is considered ``small'' if it has $175 million or
less in assets for banks and other depository institutions; and $6.5
million or less in revenues for non-bank mortgage lenders, mortgage
brokers, and loan servicers. U.S. Small Business Administration,
Table of Small Business Size Standards Matched to North American
Industry Classification System Codes, available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
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A. Reasons for the Proposed Rule
Congress enacted the TILA based on findings that economic stability
would be enhanced and competition among consumer credit providers would
be strengthened by the informed use of credit resulting from consumers'
awareness of the cost of credit. One of the stated purposes of TILA is
to provide a meaningful disclosure of credit terms to enable consumers
to compare credit terms available in the marketplace more readily and
avoid the uninformed use of credit. TILA also contains procedural and
substantive protections for consumers. TILA directs the Board to
prescribe regulations to carry out the purposes of the statute. The
Board's Regulation Z implements TILA.
Congress enacted the Mortgage Disclosure Improvement Act of 2008
(MDIA) in 2008 as an amendment to TILA. The MDIA amends TILA's special
disclosure requirements for closed-end mortgage transactions that are
secured by a consumer's dwelling and subject to the Real Estate
Settlement Procedures Act (RESPA). In July 2008, the Board revised
Regulation Z to expand the number of transactions in which creditors
must give a good faith estimate of the required disclosures (``early
disclosures''). Previously, early disclosures were required only for
loans made to finance the purchase or initial construction of a
consumer's principal dwelling. Under the July 2008 final rule,
creditors must provide early disclosures for any transaction secured by
the consumer's principal dwelling, such as a home refinance loan or
home equity loan. The MDIA amends TILA to require early disclosures for
consumer loans secured by any dwelling, even if it is not the
consumer's principal dwelling. As explained in parts I and II of the
SUPPLEMENTARY INFORMATION, the proposal would require creditors to
delay consummating a loan for seven business days after the creditor
makes early disclosures, and three business days after the consumer
receives any required corrected disclosures.
B. Statement of Objectives and Legal Basis
Parts I and II of the SUPPLEMENTARY INFORMATION contain a detailed
discussion of the objectives and legal basis for this proposed
rulemaking. In summary, the proposed amendments to Regulation Z are
designed to implement changes that the MDIA makes to TILA. The legal
basis for the proposed rule is in Section 105(a) of TILA.
C. Description of Small Entities to Which the Proposed Rule Would Apply
The proposed regulations would apply to all institutions and
entities that engage in closed-end dwelling-secured lending for
consumer purposes that is subject to RESPA. TILA and Regulation Z have
broad applicability to individuals and businesses that originate even
small numbers of home-secured loans. See Sec. 226.1(c)(1). The Board
is not aware of a reliable source for the total number or asset sizes
of small entities likely to be affected by the proposal. However,
through data from Reports of Condition and Income (``Call Reports'') of
depository institutions and certain subsidiaries of banks and bank
companies, as well as data reported under the Home Mortgage Disclosure
Act (HMDA),\4\ the Board can estimate
[[Page 74995]]
the approximate number of small depository institutions that would be
subject to the proposed rules. For the majority of HMDA respondents
that are not depository institutions, exact asset size information is
not available, although the Board has somewhat reliable estimates based
on self-reporting from approximately five percent of the non-depository
respondents.
---------------------------------------------------------------------------
\4\ HMDA requires lenders to report information annually to
their federal supervisory agencies for each application and loan
acted on during the calendar year. See 12 U.S.C. 2801 et seq. The
loans reported are estimated to represent about 80 percent of all
home lending nationwide and therefore are likely to be broadly
representative of home lending in the United States. Robert B.
Avery, and Kenneth P. Brevoort, and Glenn B. Canner, The 2007 HMDA
Data, 84 Federal Reserve Bulletin (forthcoming 2008) (2007 HMDA
Data) at 2, http://www.federalreserve.gov/pubs/bulletin/2008/pdf/hmda07draft.pdf.
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Based on the best information available, the Board makes the
following estimate of small entities that would be affected by this
proposed rule: According to June 2008 Call Report data, approximately
9,670 small depository institutions would be subject to the proposed
rule. Approximately 16,966 depository institutions in the United States
filed Call Report data, approximately 12,392 of which had total
domestic assets of $175 million or less and thus were considered small
entities for purposes of the RFA. Of 4,387 banks, 588 thrifts and 7,278
credit unions that filed Call Report data and were considered small
entities, 4,236 banks, 553 thrifts, and 4,881 credit unions, totaling
9,670 institutions, extended mortgage credit. For purposes of this Call
Report analysis, thrifts include savings banks, savings and loan
entities, co-operative banks and industrial banks. Further, HMDA data
reported in 2008 (for 2007 lending activities) indicate that 1,752 non-
depository institutions (independent mortgage companies, subsidiaries
of a depository institution, or affiliates of a bank holding company)
filed HMDA reports in 2008 for 2007 lending activities.\5\ Based on the
small volume of lending activity reported by these institutions, most
are likely to be small entities. In connection with its proposed
amendments to Regulation Z to implement the MDIA, the Board invites
comment and information on the number and type of small entities that
originate loans secured by a consumer's dwelling and subject to RESPA.
---------------------------------------------------------------------------
\5\ 2007 HMDA Data at 5-6 and tbl. 2.
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D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
The compliance requirements of the proposed rules are described in
parts I and II of the SUPPLEMENTARY INFORMATION. The effect of the
proposed revisions to Regulation Z on small entities is unknown. To
comply with the revised rules, many small entities would be required to
modify their procedures for making credit disclosures for dwelling-
secured mortgage transactions. The precise costs to small entities of
updating their systems and disclosures are difficult to predict. These
costs will depend on a number of unknown factors, including, among
other things, the specifications of the current systems used by such
entities to prepare and provide disclosures. The Board believes that
these costs will not have a significant economic effect on small
entities. The Board seeks information and comment on any costs,
compliance requirements, or changes in operating procedures arising
from the application of the proposed rule to small institutions.
E. Identification of Duplicative, Overlapping, or Conflicting Federal
Rules
The Board has not identified any federal rules that conflict with
the proposed revisions to Regulation Z. As discussed in part II of the
SUPPLEMENTARY INFORMATION, TILA and the Board's proposed revisions to
Regulation Z overlap with RESPA and HUD's Regulation X, which
implements RESPA. TILA's purpose is to inform consumers about loan
terms, and RESPA's is to inform consumers about settlement costs. These
laws overlap with one another because settlement costs may include loan
origination fees, and consumers may finance their settlement costs.
Moreover, the Board's proposed revisions overlap with Regulation X, as
revised by HUD in November 2008, in at least three ways. First, the
proposed revisions apply to an extension of credit that is both secured
by a consumer's dwelling and subject to RESPA. Second, the proposed
revisions continue to cross-reference the definition of ``application''
under Regulation X. Third, the time period following application,
within which creditors would have to make early disclosures under the
Board's proposed rule, is the same as the time period within which
creditors must make good faith estimates of settlement costs under
RESPA--within three business days following application. Moreover, the
proposed early disclosure requirements use a definition of ``business
day'' that is consistent with the ``business day'' definition under
Regulation X.
The MDIA amends TILA to base timing requirements for corrected
disclosures on the date of ``consummation''--rather than on the later
of ``consummation'' and ``settlement''--for purposes of timing rules
for most, but not all, mortgage transactions secured by a consumer's
dwelling. Therefore, for most dwelling-secured mortgage transactions,
the Board's proposed revisions to Regulation Z would remove references
to ``settlement,'' a term defined in Regulation X. These revisions to
Regulation Z and associated commentary thus would reduce overlap with
Regulation X. However, the MDIA's timing requirements for corrected
disclosures for transactions secured by a consumer's interest in a
timeshare plan refer both to ``consummation'' and ``settlement.'' The
Board is requesting comment the costs and benefits of basing the timing
requirements for corrected disclosures solely on the time of
consummation, for purposes of non-timeshare transactions, but on the
time of consummation or settlement, for purposes of timeshare
transactions.
F. Identification of Duplicative, Overlapping, or Conflicting State
Laws
Certain sections of the proposed rules may result in inconsistency
with certain state laws. The closed-end credit disclosure requirements
in TILA that the proposed rules would implement do not annul, alter, or
affect the laws of any State relating to the disclosure of information
in connection with credit transactions, except to the extent those laws
are inconsistent with TILA, and then only to the extent of the
inconsistency. See 15 U.S.C. 1610(a); 12 CFR 226.28(a)(1). Interested
parties may request that the Board determine whether any such
inconsistency exists, in accordance with procedures prescribed in the
Board's regulations. The Board seeks comment regarding any state or
local statutes or regulations that would duplicate, overlap, or
conflict with the proposed rule.
G. Discussion of Significant Alternatives
The Board does not believe that reasonable alternatives to the
proposed rule as a whole exist for implementing the MDIA's disclosure
requirements for closed-end mortgage transactions secured by a
consumer's dwelling and subject to RESPA. The Board is proposing
regulations for the narrow purpose of carrying out its statutory
mandate to implement the Truth in Lending Act, as amended by the MDIA.
The Board nevertheless welcomes comments on any significant
alternatives, consistent with the MDIA's requirements, that would
minimize the impact of the proposed rule on small entities.
List of Subjects in 12 CFR Part 226
Advertising, Consumer protection, Federal Reserve System,
Mortgages, Reporting and recordkeeping requirements, Truth in lending.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
revisions.
[[Page 74996]]
New language, compared to the Regulation Z amendments the Board adopted
in the July 2008 final rule (73 FR 44522; July 30, 2008), is shown
inside bold arrows, and language that would be deleted is set off with
bold brackets.
Authority and Issuance
For the reasons set forth in the preamble, the Board proposes to
amend Regulation Z, 12 CFR part 226, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
1. The authority citation for part 226 continues to read as
follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), and
1639(l).
Subpart A--General
2. Section 226.2 is amended by revising paragraph (a)(6) to read as
follows:
Sec. 226.2 Definitions and rules of construction.
(a) * * *
(6) Business Day means a day on which the creditor's offices are
open to the public for carrying on substantially all of its business
functions. However, for purposes of rescission under Sec. Sec. 226.15
and 226.23, and for purposes of Sec. 226.19(a)(1)(ii) [rtrif], Sec.
226.19(a)(2),[ltrif] and Sec. 226.31, the term means all calendar days
except Sundays and the legal public holidays specified in 5 U.S.C.
6103(a), such as New Year's Day, the Birthday of Martin Luther King,
Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
* * * * *
Subpart C--Closed-End Credit
3. Section 226.17 is amended by revising paragraph (f) to read as
follows:
Sec. 226.17 General disclosure requirements.
* * * * *
(f) Early disclosures. If disclosures required by this subpart are
given before the date of consummation of a transaction and a subsequent
event makes them inaccurate, the creditor shall disclose before
consummation [lsqbb](except that, for certain mortgage transactions,
Sec. 226.19 permits redisclosure no later than consummation or
settlement, whichever is later).[rsqbb][rtrif](subject to the
provisions of Sec. 226.19(a)(2) and Sec. 226.19(a)(5)(iii)):[ltrif]
\39\
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\39\ [Reserved.]
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* * * * *
4. Section 226.19 is amended by revising paragraphs (a)(1)(i) and
(a)(2), and adding new paragraphs (a)(3), (a)(4), and (a)(5), to read
as follows:
Sec. 226.19 Certain mortgage and variable-rate transactions.
(a) Mortgage transactions subject to RESPA--(1)(i) Time of
disclosures. In a mortgage transaction subject to the Real Estate
Settlement Procedures Act (12 U.S.C. 2601 et seq.) that is secured by
the consumer's [lsqbb]principal[rsqbb] dwelling, other than a home
equity line of credit subject to Sec. 226.5b [rtrif]or mortgage
transaction subject to paragraph (a)(5) of this section[ltrif], the
creditor shall make good faith estimates of the disclosures required by
Sec. 226.18 [lsqbb]before consummation, or shall
deliver[rsqbb][rtrif]. The creditor shall deliver[rsqbb] these good
faith estimates[ltrif] or place them in the mail not later than three
business days after the creditor receives the consumer's written
application, [lsqbb]whichever is earlier.[rsqbb][rtrif]and at least
seven business days before consummation of the transaction.[ltrif]
* * * * *
(2) Redisclosure required. [lsqbb]If the annual percentage rate at
the time of consummation varies from the annual percentage rate
disclosed earlier by more than \1/8\ of 1 percentage point in a regular
transaction or more than \1/4\ of 1 percentage point in an irregular
transaction, as defined in Sec. 226.22, the creditor shall disclose
all the changed terms no later than consummation or
settlement.[rsqbb][rtrif]If the annual percentage rate disclosed in the
good faith estimates required by paragraph (a)(1) of this section
becomes inaccurate under Sec. 226.22, the creditor shall make
corrected disclosures to the consumer under Sec. 226.18 with an
accurate annual percentage rate, as determined under Sec. 226.22, and
all changed terms. The consumer must receive the corrected disclosures
no later than three business days before consummation. If the
disclosures required under this paragraph are mailed to the consumer,
the consumer is deemed to have received the disclosures three business
days after they are mailed.
(3) Consumer's waiver of waiting period before consummation. If the
consumer determines that the extension of credit is needed to meet a
bona fide personal financial emergency, the consumer may modify or
waive the seven-business-day waiting period required by paragraph
(a)(1)(i) of this section or the three-business-day waiting period
required by paragraph (a)(2) of this section, after receiving the
disclosures required by Sec. 226.18. To modify or waive a waiting
period, the consumer shall give the creditor a dated written statement
that describes the emergency, specifically modifies or waives the
waiting period, and bears the signature of all the consumers entitled
to receive the disclosures. Printed forms for this purpose are
prohibited.
(4) Notice. Disclosures made pursuant to paragraph (a)(1) or
paragraph (a)(2) of this section shall contain the following statement:
``You are not required to complete this agreement merely because you
have received these disclosures or signed a loan application.''
(5) Timeshare plans. In a mortgage transaction subject to the Real
Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) that is
secured by a consumer's interest in a timeshare plan described in 11
U.S.C. 101(53D)):
(i) The requirements of paragraph (a)(1) through (a)(4) of this
section do not apply;
(ii) The creditor shall make good faith estimates of the
disclosures required by Sec. 226.18 before consummation, or shall
deliver or place them in the mail not later than three business days
after the creditor receives the consumer's written application,
whichever is earlier; and
(iii) If the annual percentage rate at the time of consummation
varies from the annual percentage rate disclosed under paragraph
(a)(5)(ii) of this section by more than \1/8\ of 1 percentage point in
a regular transaction or more than \1/4\ of 1 percentage point in an
irregular transaction, as defined in Sec. 226.22, the creditor shall
disclose all the changed terms no later than consummation or
settlement.[ltrif]
* * * * *
5. In Supplement I to Part 226, under Section 226.2--Definitions
and Rules of Construction, 2(a) Definitions, 2(a)(6) Business day,
paragraph 2(a)(6)-2 is revised to read as follows:
Supplement I to Part 226--Official Staff Interpretations
* * * * *
Subpart A--General
* * * * *
Section 226.2--Definitions and Rules of Construction
2(a) Definitions.
* * * * *
2(a)(6) Business day.
* * * * *
2. [lsqbb]Rescission rule[rsqbb][rtrif]Rule for rescission and
disclosures for certain mortgage
[[Page 74997]]
transactions[ltrif]. A more precise rule for what is a business day
(all calendar days except Sundays and the federal legal holidays
specified in 5 U.S.C. 6103(a)) applies when the right of rescission
or the receipt of disclosures for certain [rtrif]dwelling-
secured[ltrif] mortgage transactions under Sec. Sec.
226.19(a)(1)(ii), [rtrif]226.19(a)(2),[ltrif] or [lsqbb]mortgages
subject to Sec. 226.32 are[rsqbb] 226.31(c) [rtrif]is[ltrif]
involved. [lsqbb](See also comment 31(c)(1)-1.)[rsqbb] Four federal
legal holidays are identified in 5 U.S.C. 6103(a) by a specific
date: New Year's Day, January 1; Independence Day, July 4; Veterans
Day, November 11; and Christmas Day, December 25. When one of these
holidays (July 4, for example) falls on a Saturday, federal offices
and other entities might observe the holiday on the preceding Friday
(July 3). [lsqbb]The[rsqbb][rtrif]In cases where the more precise
rule applies, the[ltrif] observed holiday (in the example, July 3)
is a business day [lsqbb]for purposes of rescission or the delivery
of disclosures for certain high-cost mortgages covered by Sec.
226.32[rsqbb].
* * * * *
Subpart C--Closed-End Credit
6. In Supplement I to Part 226, under Section 226.19--Certain
Mortgage and Variable-Rate Transactions, 19(a)(1)(i) Time of
disclosure, paragraphs 19(a)(1)(i)-1 through 19(a)(1)(i)-5 are revised
and new paragraph 19(a)(1)(i)-6 is added, heading Paragraph 19(a)(2)
Redisclosure required and paragraphs 19(a)(2)-1 through 19(a)(2)-3 are
revised and paragraph 19(a)(2)-4 is removed, new heading 19(a)(3)
Consumer's waiver of waiting period before consummation and new
paragraphs 19(a)(3)-1 and 19(a)(3)-2 are added, new heading
19(a)(5)(ii) Time of disclosures for timeshare plans and new paragraph
19(a)(5)(ii)-1 are added, and new heading 19(a)(5)(iii) Redisclosure
for timeshare plans and new paragraph 19(a)(5)(iii)-1 are added, to
read as follows:
Section 226.19--Certain Mortgage and Variable-Rate Transactions
19(a)(1)(i) Time of disclosure.
1. Coverage. This section requires early disclosure of credit
terms in mortgage transactions that are secured by a consumer's
[lsqbb]principal[rsqbb] dwelling [rtrif](other than home equity
lines of credit subject to Sec. 226.5b or mortgage transactions
secured by an interest in a timeshare plan)[ltrif] and also subject
to the Real Estate Settlement Procedures Act (RESPA) and its
implementing Regulation X, administered by the Department of Housing
and Urban Development (HUD). To be covered by Sec. 226.19, a
transaction must be a federally related mortgage loan under RESPA.
``Federally related mortgage loan'' is defined under RESPA (12
U.S.C. 2602) and Regulation X (24 CFR 3500.2), and is subject to any
interpretations by HUD. [lsqbb]RESPA coverage includes such
transactions as loans to purchase dwellings, refinancings of loans
secured by dwellings, and subordinate-lien home-equity loans, among
others. Although RESPA coverage relates to any dwelling, Sec.
226.19(a) applies to such transactions if they are secured by a
consumer's principal dwelling. Also, home equity lines of credit
subject to Sec. 226.5b are not covered by Sec. 226.19(a). For
guidance on the applicability of the Board's revisions to Sec.
226.19(a) published on July 30, 2008, see comment 1(d)(5)-1.[rsqbb]
2. Timing and use of estimates. [lsqbb]Truth in Lending
disclosures must be given[rsqbb][rtrif]The disclosures required by
Sec. 226.19(a)(1)(i) must be delivered or mailed[ltrif] [lsqbb](a)
before consummation or (b) within[rsqbb][rtrif]not later than[ltrif]
three business days after the creditor receives the consumer's
written application[lsqbb], whichever is earlier.[rsqbb] [rtrif]and
at least seven business days before consummation. The general
definition of ``business day'' in Sec. 226.2(a)(6)--a day on which
the creditor's offices are open to the public for substantially all
of its business functions--is used for purposes of Sec.
226.19(a)(1)(i). See comment 2(a)(6)-1. This general definition is
consistent with the definition of ``business day'' in HUD's
Regulation X--a day on which the creditor's offices are open to the
public for carrying on substantially all of its business functions.
See 24 CFR 6500.2. Accordingly, the[ltrif][lsqbb]The[rsqbb]
three[rtrif]-business-[ltrif]day period in Sec. 226.19(a)(1)(i) for
making early disclosures coincides with the time period within which
creditors subject to RESPA must provide good faith estimates of
settlement costs. If the creditor does not know the precise credit
terms, the creditor must base the disclosures on the best
information reasonably available and indicate that the disclosures
are estimates under Sec. 226.17(c)(2). If many of the disclosures
are estimates, the creditor may include a statement to that effect
(such as ``all numerical disclosures except the late-payment
disclosure are estimates'') instead of separately labelling each
estimate. In the alternative, the creditor may label as an estimate
only the items primarily affected by unknown information. (See the
commentary to Sec. 226.17(c)(2).) The creditor may provide
explanatory material concerning the estimates and the contingencies
that may affect the actual terms, in accordance with the commentary
to Sec. 226.17(a)(1).)
3. Written application. Creditors may rely on RESPA and
Regulation X (including any interpretations issued by HUD) in
deciding whether a ``written application'' has been received. In
general, Regulation X [lsqbb]requires disclosures ``to every person
from whom the Lender receives or for whom it prepares a written
application on an application form or forms normally used by the
Lender for a Federally Related Mortgage Loan'' (See 24 CFR
3500.6(a)).[rsqbb][rtrif]defines ``application'' to mean the
submission of a borrower's financial information in anticipation of
a credit decision relating to a federally related mortgage loan. See
24 CFR 3500.2(b).[ltrif] An application is received when it reaches
the creditor in any of the ways applications are normally
transmitted--by mail, hand delivery, or through an intermediary
agent or broker. (See comment 19(b)-3 for guidance in determining
whether or not the transaction involves an intermediary agent or
broker.) If an application reaches the creditor through an
intermediary agent or broker, the application is received when it
reaches the creditor, rather than when it reaches the agent or
broker.
4. Exceptions. The creditor may determine within the three-
[rtrif]business-[ltrif]day period that the application will not or
cannot be approved on the terms requested, as, for example, when a
consumer applies for a type or amount of credit that the creditor
does not offer, or the consumer's application cannot be approved for
some other reason. In that case, the creditor need not make the
disclosures under this section. If the creditor fails to provide
early disclosures and the transaction is later consummated on the
original terms, the creditor will be in violation of this provision.
If, however, the consumer amends the application because of the
creditor's unwillingness to approve it on its original terms, no
violation occurs for not providing disclosures based on the original
terms. But the amended application is a new application subject to
Sec. 226.19(a)(1)(i).
5. Itemization of amount financed. In many mortgage
transactions, the itemization of the amount financed required by
Sec. 226.18(c) will contain items, such as origination fees or
points, that also must be disclosed as part of the good faith
estimates of settlement costs required under RESPA. Creditors
furnishing the RESPA good faith estimates need not give consumers
any itemization of the amount financed, either with the disclosures
provided within three [rtrif]business[ltrif] days after application
or with the disclosures [rtrif]required by Sec. 226.19(a)(2)
and[ltrif] given [lsqbb]at[rsqbb][rtrif]three business days
before[ltrif] consummation [lsqbb]or settlement[rsqbb].
[rtrif]6. Consummation. The following examples illustrate when
consummation may occur under Sec. 226.19(a)(1)(i) in different
circumstances:
i. A creditor that is open for business only Monday through
Friday delivers the early disclosures to the consumer in person or
places them in the mail on Monday, June 1. Consummation may occur on
or after Wednesday, June 10, the seventh business day following
delivery or mailing of the early disclosures.
ii. A creditor that is open for business seven days per week
delivers the early disclosures to the consumer in person or places
them in the mail on Monday, June 1. Consummation may occur on or
after Monday, June 8, the seventh business day following delivery or
mailing of the early disclosures.[ltrif]
* * * * *
[lsqbb]Paragraph[rsqbb] 19(a)(2) Redisclosure required.
1. Conditions for redisclosure. [lsqbb]Creditors must make new
disclosures if the annual percentage rate at consummation differs
from the estimate originally disclosed by more than \1/8\ of 1
percentage point in regular transactions or \1/4\ of 1 percentage
point in irregular transactions, as defined in footnote 46 of Sec.
226.22(a)(3). The creditor must also redisclose if a variable rate
feature is added to the credit terms after the original disclosures
have been made. The creditor has the option of redisclosing
information under other circumstances, if it wishes to do
[[Page 74998]]
so.[rsqbb][rtrif]If, at the time of consummation, the APR disclosed
as required by Sec. 226.19(a)(1)(i) is accurate under Sec. 226.22,
the creditor has complied with Sec. 226.19(a)(2). If, on the other
hand, the APR disclosed as required by Sec. 226.19(a)(1)(i) is not
accurate under Sec. 226.22, the creditor must make corrected
disclosures of all changed terms (including the APR) so that the
consumer receives them at least three business days before
consummation. For example, assume consummation is scheduled for
Thursday, June 11 and the early disclosures for a regular mortgage
transaction disclose an APR of 7.00%:
i. On Thursday, June 11, the APR will be 7.10%. The creditor is
not required to make corrected disclosures under Sec. 226.19(a)(2).
ii. On Thursday, June 11, the APR will be 7.15%. The creditor
must make corrected disclosures to the consumer on or before Monday,
June 8.[ltrif]
2. Content of new disclosures. If redisclosure is required, the
creditor may provide a complete set of new disclosures, or may
redisclose only the [rtrif]changed[ltrif] terms [lsqbb]that vary
from those originally disclosed[rsqbb]. If the creditor chooses to
provide a complete set of new disclosures, the creditor may but need
not highlight the new terms, provided that the disclosures comply
with the format requirements of Sec. 226.17(a). If the creditor
chooses to disclose only the new terms, all the new terms must be
disclosed. For example, a different annual percentage rate will
almost always produce a different finance charge, and often a new
schedule of payments; all of these changes would have to be
disclosed. If, in addition, unrelated terms such as the amount
financed or prepayment penalty vary from those originally disclosed,
the accurate terms must be disclosed. However, no new disclosures
are required if the only inaccuracies involve estimates other than
the annual percentage rate, and no variable rate feature has been
added.
3. Timing. Redisclosures, when necessary [rtrif]because the
annual percentage rate has become inaccurate[ltrif], must be
[lsqbb]given[rsqbb][rtrif]received by the consumer[ltrif] no later
than [lsqbb]``consummation or settlement.'' ``Consummation'' is
defined in Sec. 226.2(a). ``Date of settlement'' is defined in
Regulation X (24 CFR 3500.2(a)) and is subject to any
interpretations issued under RESPA and Regulation
X.[rsqbb][rtrif]three business days before consummation. (For
redisclosures triggered by other events, the creditor must provide
corrected disclosures before consummation. See Sec. 226.17(f).) For
purposes of Sec. 226.19(a)(2), ``business day'' means all calendar
days except Sundays and the legal public holidays referred to in
Sec. 226.2(a)(6). See comment 2(a)(6)-2. If the creditor delivers
the corrected disclosures to the consumer in person, consummation
may occur any time on the third business day following delivery. If
the creditor places the disclosures in the mail, the consumer is
considered to have received them three business days after they are
mailed. For example, if the creditor places the disclosures in the
mail on Thursday, June 4, the disclosures are considered received on
Monday, June 8 and consummation may occur any time on or after
Thursday, June 11.[ltrif]
[lsqbb]4. Basis of disclosures. In some cases, a creditor may
delay redisclosure until settlement, which may be at a time later
than consummation. If a creditor chooses to redisclose at
settlement, disclosures may be based on the terms in effect at
settlement, rather than at consummation. For example, in a variable-
rate transaction, a creditor may choose to base disclosures on the
terms in effect at settlement despite the general rule in the
commentary to Sec. 18(f) that variable-rate disclosures should be
based on the terms in effect at consummation.[rsqbb]
[rtrif]19(a)(3) Consumer's waiver of waiting period before
consummation.
1. Modification or waiver. A consumer may modify or waive the
right to the waiting period required by Sec. 226.19(a)(1)(i) or
Sec. 226.19(a)(2) only after the creditor makes the disclosures
required by Sec. 226.18. The consumer must have a bona fide
personal financial emergency that necessitates consummating the
credit transaction before the end of the waiting period. Whether a
bona fide personal financial emergency must be met before the end of
the waiting period is determined by the facts surrounding individual
situations. The imminent sale of the consumer's home at foreclosure
during the waiting period is one example of a bona fide personal
financial emergency. Each consumer entitled to receive the required
disclosures must sign the written statement for the waiver to be
effective.
2. Examples. Assume the early disclosures are delivered to the
consumer in person on Monday, June 1, and at that time the consumer
executes a waiver of the seven-business-day waiting period (which
would end on Tuesday, June 9) so that the loan can be consummated on
Friday, June 5:
i. If the APR on the early disclosures is inaccurate under Sec.
226.22, the creditor must provide a corrected disclosure to the
consumer before consummation, which triggers the three-business-day
waiting period in Sec. 226.19(a)(2). After the consumer receives
the corrected disclosure, the consumer must execute a waiver of the
three-business-day waiting period in order to consummate the
transaction on June 5.
ii. If a change occurs that does not render the APR on the early
disclosures inaccurate under Sec. 226.22, the creditor must
disclose the changed terms before consummation, consistent with
Sec. 226.17(f). Disclosure of the changed terms does not trigger an
additional waiting period, and the transaction may be consummated on
June 5 without obtaining an additional modification or waiver from
the consumer.
19(a)(5)(ii) Time of disclosures for timeshare plans.
1. Timing and use of estimates. A mortgage transaction secured
by a consumer's interest in a ``timeshare plan,'' as defined in 11
U.S.C. 101(53D), that is also a federally related mortgage loan
under RESPA is subject to the requirements of Sec. 226.19(a)(5)
instead of the requirements of Sec. 226.19(a)(1) through Sec.
226.19(a)(4). See comment 19(a)(1)(i)-1. Early disclosures for
transactions subject to Sec. 226.19(a)(5) must be given (a) before
consummation or (b) within three business days after the creditor
receives the consumer's written application, whichever is earlier.
The general definition of ``business day'' in Sec. 226.2(a)(6)--a
day on which the creditor's offices are open to the public for
substantially all functions--applies for purposes of Sec.
226.19(a)(5)(ii). See comment 2(a)(6)-1. These timing requirements
are different than the timing requirements under Sec.
226.19(a)(1)(i). Although timeshare transactions covered by Sec.
226.19(a)(5) are not subject to the seven-business-day waiting
period in Sec. 226.19(a)(1)(i), in all other respects, the early
disclosure requirements under Sec. 226.19(a)(5)(ii) apply in the
same manner as the requirements under Sec. 226.19(a)(1)(i). For
example, the commentary to Sec. 226.19(a)(1)(i) concerning the
permissible use of estimates and the definition of ``written
application'' under Sec. 226.19(a)(1)(i) also apply to Sec.
226.19(a)(5)(ii). See comments 19(a)(1)(i)-2 and 19(a)(1)(i)-3.
19(a)(5)(iii) Redisclosure for timeshare plans.
1. Consummation or settlement. For extensions of credit secured
by a consumer's timeshare plan, when corrected disclosures are
required, they must be given no later than ``consummation or
settlement.'' ``Consummation'' is defined in Sec. 226.2(a).
``Settlement'' is defined in Regulation X (24 CFR 3500.2(b)) and is
subject to any interpretations issued under RESPA and Regulation X.
In some cases, a creditor may delay redisclosure until settlement,
which may be at a time later than consummation. If a creditor
chooses to redisclose at settlement, disclosures may be based on the
terms in effect at settlement, rather than at consummation. For
example, in a variable-rate transaction, a creditor may choose to
base disclosures on the terms in effect at settlement, despite the
general rule in the commentary to section 18(f) that variable-rate
disclosures should be based on the terms in effect at consummation.
Although the three-business-day waiting period in Sec. 226.19(a)(2)
does not apply to timeshare transactions, in all other respects the
requirements for corrected disclosures under Sec. 226.19(a)(5)(iii)
apply in the same manner as the requirements under Sec.
226.19(a)(2). For example, to make corrected disclosures, the
creditor may provide a complete set of new disclosures or may
redisclose only those terms that vary from those originally
disclosed. See comment 19(a)(2)-2.[ltrif]
Supplement I to Part 226 [Amended]
7. In Supplement I to Part 226, under Section 226.31--General
Rules, heading Paragraph 31(c)(2) Disclosures for reverse mortgages and
paragraph 31(c)(2)-1 are revised, to read as follows:
Subpart E--Special Rules for Certain Home Mortgage Transactions
* * * * *
Section 226.31--General Rules
* * * * *
[lsqbb]Paragraph[rsqbb] 31(c)(2) Disclosures for reverse
mortgages.
1. Business days. For purposes of providing reverse mortgage
disclosures,
[[Page 74999]]
``business day'' has the same meaning as in comment 31(c)(1)-
[lsqbb]2[rsqbb][rtrif]1[ltrif]--all calendar days except Sundays and
the federal legal holidays listed in 5 U.S.C. 6103(a). This means if
disclosures are provided on a Friday, consummation could occur any
time on Tuesday, the third business day following receipt of the
disclosures.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, December 4, 2008.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E8-29123 Filed 12-9-08; 8:45 am]
BILLING CODE 6210-01-P